Worrisome words for oil industry, and Alaska

Former exec says prices too high, companies getting too large

Edward Chow, a senior fellow in the Energy and National Security Program, answers questions after his Juneau World Affairs Council speech titled "The Shifting International Petroleum Landscape" at KTOO studios on Thursday.

Despite improving energy production, or perhaps because of it, the United States needs to take some bold steps to improve its energy future, the Juneau World Affairs Council was told last week.

“We don’t sufficiently tax gas,” said Edward Chow, a senior fellow in Energy and National Security Program at the Center for Strategic and International Studies.

Chow said that view was just one of the opinions he holds that ensure he’ll never be elected to anything in Washington, D.C.

The nation’s security and economy could be improved by taxing motor fuels more, he said, and while at the same time bringing more money into the treasury.

“There are very few industrial countries that import so much oil that don’t discourage consumption and encourage alternatives by taxing transportation fuels,” he said.

Chow spent 30 years in the industry, 20 at Chevron, and managed operations around the world.

Among his topics were potentially worrisome words about Alaska’s fossil fuels industry, both its hoped-for natural gas and its declining oil businesses.

Oil prices are volatile, and even though they’ve stayed steadily high in recent years, there’s no guarantee they’ll stay there, he said.

“I’m here to tell you the price of oil is still probably too high,” he said.

Fears of conflict with Iran have recently propped up prices, he said, similar to what the actual conflict in Libya did last year.

If oil prices get downtown to $90 a barrel they could well drop below $80, he said.

He reminded the audience at the KTOO-TV studio that in 2008, oil prices reached unheard of levels of $147 a barrel, before the bubble burst and it fell to nearly $30 a barrel.

While the price didn’t deserve to be as high as it was based on fundamentals, it didn’t deserve to then go that low either, but that’s what the market was paying at the time.

High prices have had companies out looking more intensively for oil and gas and finding it, which will drive down prices.

“The fundamentals of the oil and gas business still matter,” Chow said.

“There’s a lot of geology that didn’t look very prospective when oil was at $20 or $30 a barrel, but when you go back at $100 a barrel it looks pretty good,” he said.

Alaska needs to offer attractive enough terms so companies will want to invest here rather than elsewhere, he said, while recognizing it is a long-term industry that suffers from short-term volatile pricing in the most fundamental commodity it produces.

Chow didn’t have high hopes for Alaskan gas production, either.

“It seems to me that as long as I’ve been in this industry we’ve been talking about moving Alaska’s gas to the Lower 48 and it still hasn’t happened, and its unlikely to happen in the near future given the price and availability of shale gas in the Lower 48,” he said.

While Alaska is now looking at exporting liquefied natural gas overseas, that’s already being done by Qatar and Australia, and new finds in places like Mozambique are probably going to go into the LNG market as well, he said.

At the same time, China is working to develop its own gas resources and may not wind up being the market currently envisioned.

Merging already-big oil companies has formed the biggest oil companies, called “supermajors” in the industry, but that has not seemed to help them much.

“You can’t keep merging companies into larger and larger entities, just like the larger and larger banks didn’t work particularly well for the financial markets,” he said.

We may need more profitable businesses that can make $100 million dollars a year, but Exxon Mobil wouldn’t even be able to find that in its balance sheet, he said.

“There is a point when big companies get too big,” he said.

BP’s spill in the Gulf of Mexico shows even the biggest companies with the most resources can’t always manage big projects, he said.

“Did the Macondo spill happen because BP was too small, or because it was to big?” he asked.